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Generally speaking I think individuals have the right to minimize their taxes through legal means, no matter how convoluted. But I also think it's reasonable fo

Generally speaking I think individuals have the right to minimize their taxes through legal means, no matter how convoluted. But I also think it's reasonable for people to draw the line somewhere for what they consider fair or unfair. Another example of an instrument that has benefited tremendously from our recent ZIRP + rising equity markets is the Grantor Retained Annuity Trust, which will likely leave a worse taste in people's mouths compared to Ellison's maneuvers. [1] It is a fair point for people to ask whether these legal maneuvers should remain legal. [1] http://www.bloomberg.com/news/articles/2013-12-17/accidental-tax-break-saves-wealthiest-americans-100-billion http://www.bloomberg.com/news/articles/2013-12-17/accidental...

charlesdm 11y ago
The problem with a lot of these things is that often you can’t make them illegal, exactly because there are so many use cases that are valid. For example, if you make the above mentioned transaction illegal, with the exception of when it’s used in a valid business transaction or for non tax avoidance motives, his lawyers will just argue that this is the most straightforward way to get liquidity without eroding control of the company. People like talking about fair and unfair, and the “spirit of the law”, but that all means something completely different to whomever is reading the law. What might seem fair to someone, won’t seem fair to others. I would assume a ton of “normal” people (i.e non entrepreneurs, income tax paying people) consider the loan thing to be unfair, but wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Second, if governments want to limit tax avoidance, they should learn to make proper laws (i.e. no half way, rushing something out of the door). A lot of laws are made in a half assed way. Stuff like this comes to mind: http://www.bloomberg.com/news/articles/2014-11-03/malone-gained-double-tax-break-in-liberty-address-shift http://www.bloomberg.com/news/articles/2014-11-03/malone-gai.... ("He avoided paying taxes on his remaining stake, worth about $260 million, by exploiting IRS regulations meant to block a different loophole.")
- sokoloff 11y ago
  > wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Spot on! For the less finance lingo savvy, that simply means take a second mortgage/home equity loan or home equity line of credit (HELOC) for a vacation, to invest in another property, pay for college or other large expense, etc.
- hkmurakami 11y ago
  I completely agree. Though for better or for worse, we seem to be headed towards an age of populism, which may actually start to affect the consensus manner in which the laws are read.
- nickpsecurity 11y ago
  You can make them illegal by making only one legal way to get money from person A to persons B. Anything over a certain amount per year, basically cost of living, gets taxed. It doesn't matter what path it took to get there. And thanks for the article. :)
  - charlesdm 11y ago
    So, if you make $100k per year (and you pay tax on that), and you then go borrow $500k to buy a house, you'd be happy paying tax on that $500k as well? And of course, you would need to repay that debt with after tax income, so you're paying tax twice. Because that's essentially what you're proposing. :) Debt != income
    - Godel_unicode 11y ago
      Mandatory H. L. Mencken quote. Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong.
      - nickpsecurity 11y ago
        Nah, Im pulling from high assurance safety and security fields. Only approaches that worked for long periods basically create a design that enforces specific, good properties in every state. Other commenters are talking failed route of open ended design that tries to guess every form of malice. It's whitelisting vs AV signatures.
    - nickpsecurity 11y ago
      Let's not make strawman. It's more like you made $500k in income, put that into an asset, borrowed it back, and spent it. That is income. Just not taxable like the rest of us.
drewrv 11y ago
> It is a fair point for people to ask whether these legal maneuvers should remain legal. We can ask all we want, so long as wealthy people buy politicians nothings drastic will happen.

charlesdm 11y ago

The problem with a lot of these things is that often you can’t make them illegal, exactly because there are so many use cases that are valid. For example, if you make the above mentioned transaction illegal, with the exception of when it’s used in a valid business transaction or for non tax avoidance motives, his lawyers will just argue that this is the most straightforward way to get liquidity without eroding control of the company. People like talking about fair and unfair, and the “spirit of the law”, but that all means something completely different to whomever is reading the law. What might seem fair to someone, won’t seem fair to others. I would assume a ton of “normal” people (i.e non entrepreneurs, income tax paying people) consider the loan thing to be unfair, but wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Second, if governments want to limit tax avoidance, they should learn to make proper laws (i.e. no half way, rushing something out of the door). A lot of laws are made in a half assed way. Stuff like this comes to mind: http://www.bloomberg.com/news/articles/2014-11-03/malone-gained-double-tax-break-in-liberty-address-shift http://www.bloomberg.com/news/articles/2014-11-03/malone-gai.... ("He avoided paying taxes on his remaining stake, worth about $260 million, by exploiting IRS regulations meant to block a different loophole.")

sokoloff 11y ago
> wouldn’t consider it unfair if they releveraged their own primary residence to achieve a similar result. Spot on! For the less finance lingo savvy, that simply means take a second mortgage/home equity loan or home equity line of credit (HELOC) for a vacation, to invest in another property, pay for college or other large expense, etc.
hkmurakami 11y ago
I completely agree. Though for better or for worse, we seem to be headed towards an age of populism, which may actually start to affect the consensus manner in which the laws are read.
nickpsecurity 11y ago
You can make them illegal by making only one legal way to get money from person A to persons B. Anything over a certain amount per year, basically cost of living, gets taxed. It doesn't matter what path it took to get there. And thanks for the article. :)
- charlesdm 11y ago
  So, if you make $100k per year (and you pay tax on that), and you then go borrow $500k to buy a house, you'd be happy paying tax on that $500k as well? And of course, you would need to repay that debt with after tax income, so you're paying tax twice. Because that's essentially what you're proposing. :) Debt != income
  - Godel_unicode 11y ago
    Mandatory H. L. Mencken quote. Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong.
    - nickpsecurity 11y ago
      Nah, Im pulling from high assurance safety and security fields. Only approaches that worked for long periods basically create a design that enforces specific, good properties in every state. Other commenters are talking failed route of open ended design that tries to guess every form of malice. It's whitelisting vs AV signatures.
  - nickpsecurity 11y ago
    Let's not make strawman. It's more like you made $500k in income, put that into an asset, borrowed it back, and spent it. That is income. Just not taxable like the rest of us.

drewrv 11y ago

> It is a fair point for people to ask whether these legal maneuvers should remain legal. We can ask all we want, so long as wealthy people buy politicians nothings drastic will happen.